Friday, March 13, 2009
Two more thoughts on the Fed's fourth quarter 2008 flow of funds accounts. Tangible assets are taking a hit, but equities really got slammed.
Possibly more disturbing is the massive hit to pension fund reserves, -12%. This would be particularly bad if (a) markets do not rebound, or (b) big companies go bankrupt, leaving a large pension liability to the U.S. taxpayer (This is a little dated, but Fidelity produced an interesting report on retirement contributions in 2008).
Government is levering up, while the private sector is trying to reduce debt burden.
I don't have a whole lot to say about this one. Wait a minute, of course I do! First, amid financial strain and overleverage in the private sector, the federal government is levering up. Its debt burden increased an annualized 37% in the fourth quarter, which is 30% above the average quarterly growth rate spanning 2001-2007.
The household sector saw the only reduction in debt burden for both consumer loans (auto loans, credit cards, student loans, etc.) -3.2%, and mortgages, -1.2%. This is a 180-degree U-turn from the 2001-2007 average consumer debt growth of +5% and mortgage debt growth of +11.45%.
Debt growth accelerated slightly in the domestic financial sector, up 0.4% to 7.2%, but still 2.5% shy of its 2001-2007 average.